Chaosmark:
And this is why I post things here. I never would've come up with some of these ideas.

Suzod: That's an excellent list. I had thought about the beneficial physiological effects of being overcome by fear, but neglected to mention it in my original post. I wasn't thinking there were too many good things that happen; your sensitivity changes (light, sound, touch, etc.), you react faster, and you're stronger, but those are pretty much it from my understanding.

Val: That custom deck idea is brilliant. I'm sorely tempted to build one now; it's not like getting custom decks printed is all that expensive either.

My one concern is that 40 is probably a bit too large, even if you're drawing two or three cards at a time for really scary events. Assuming a 4-hour game, you'd have to be drawing off cards once every 6 minutes to burn through the entire deck (shorter games would need to draw faster than that). Obviously you don't want to go through the whole thing, but since most of the cards are going to have little-to-no effect, you do want to go through a significant portion of the deck in a session, otherwise the chances of them grabbing one of the reaction cards is rather low.

My calculations are showing that dropping it to 30 or even 20 cards makes it much more likely that they'll get some effect. Of course, you could keep a single, slightly larger deck that gets used for the entire party. Any one person is less likely to draw a reaction, but the deck gets burned faster, so the chances of a freak-out over the course of an evening rise significantly.

The really interesting thing you can do with the custom decks, though, is let their perks and flaws add new cards to it. So if they took the flaw, "Paranoid", they might add a few special "Shaken" cards and a specific "Oh @!#$" card to their deck, keyed specifically to the effects of their paranoia. Similarly, the "White Knight" perk would add some "Bravery" and a "Heroism" card to the deck. That definitely makes things more personal, which burrows right to the heart of fear.

Gossamer:
In D&D 4e The Shadowfell: Gloomwrought and Beyond, they added a despair deck. I'll just give an example of one of the cards:HopelessYou take a -2 penalty to saving throws until you overcome this despair effect.Key Skill: Insight. If you are trained in Insight, you gain a +2 bonus to the roll to overcome this despair effect.Boon: After you overcome this despair effect, you gain a +2 bonus to saving throws until the end of your next extended rest.

You're handed out these cards either after something dramatic happened, or after a milestone or two (several encounters).And then you make a saving throw after each extended rest.

So this ties into the mechanics of the game rather than the roleplaying aspect, but obviously both are encouraged.I know this isn't really of the horror genre but meh, my two cents worth.

On a related note, I hate how they handle the Fear keyword in 4e. It's just a lousy -2 penalty to attack rolls. I was thinking about something similar to Xcom's panic system, so maybe roll on a table and the character has to move its speed away from the cause of the fear, or fire/slash blindly at the threat or simply miss a turn to huddle in a corner.